The World Bank’s latest report on the Sub-Saharan countries has revealed that Ghana’s economic prospects continue to show promise in the medium term, forecasting that the 4.7 % growth in the West African country’s GDP in 2014 will remain more or less constant this year and then rise during the two year period to 2017, when it should reach between 5.5 and 6%.
Ghana is rich in mineral resources such as gold and diamonds in addition to being the world’s second-largest cocoa producer, behind Ivory Coast. However, the Washington-based institute has identified the energy sector as a priority and the key to generating the long-term development of the Ghanaian economy.
The nation formerly known as the Gold Coast became an oil producer at the end of 2010 thanks to the discovery, in June 2007, of the Jubilee oilfield located offshore from Western Ghana at a depth of 1000-1500 metres: the oilfield contains oil reserves estimated at 1.8 billion barrels.
The export of crude oil had an immediate impact and was chiefly responsible for the exceptional 15% growth in GDP recorded in 2011, but more importantly, it has led to an increase in direct foreign investment in the country.
Even though compared with 2011, current GDP growth is considerably more modest, the positive trend looks set to continue until 2017, thanks to significant investment in infrastructure projects concerning the mining, extraction and transport industries, which together with agriculture are the driving forces of the Ghanaian economy.
Oil production from the Jubilee wells began with an initial 60 thousand barrels a day: today’s production has reached an average of 100 thousand barrels and the aim is to reach peak production of 120 thousand barrels. Also contributing to the increased production will be the offshore oilfield in the Tweneboa basin, discovered in 2010 by the British company Tullow Oil and estimated to contain reserves of Oil In Place (OIP) of around 1.4 billion barrels.
Even taking into account that the size of the reserves in Ghana are considerably smaller than those in other African countries such as Nigeria, Libya and Angola, this data appears to confirm the optimism surrounding the profitability of oil investments in the medium and long term. Furthermore, it’s worth noting that, in difference to the above-mentioned countries, extraction from the Ghanaian oilfields benefits from the country’s stable political and socio-economic conditions as well as its favourable fiscal regime.
Accra’s potential in the energy sector was further endorsed with the signature of an agreement last Tuesday between ENI, Vitol, the Ghana National Petroleum Corporation (GNPC) and the Ghanaian President John Dramani Mahama and Oil Minister, Emmanuel Armah-Kofi Buah.
The deal establishes the development of the Offshore Cape Three Points (OCTP) project, an integrated development plan for offshore extraction in a deep water site located 60km from the coast of Western Ghana: the oil and gas field contains around 41 billion cubic metres of gas-in-place and 500 million barrels of oil-in-place.
The OCTP fields contain enough gas to provide a continuous supply to Ghana’s thermal power sector until at least 2036. This development should put an end to the frequent interruptions to the gas supply that have occurred with imports from Nigeria through the West Africa Gas Pipeline (WAGP) and have prevented Ghana’s thermal power stations from running at optimal levels.
The supply of gas will be guaranteed by long-term contracts with the Ghanaian government. Moreover, through the GNPC’s participation in the project, from 2017 Ghana will benefit from an increase in the production of oil and greater revenues for the government due to the increase in royalty payments, taxes and dividends as well as the positive knock-on effects on employment and the development of the local economy.
It is also important to highlight that the project will have a minimal environmental impact due to the use of ‘zero flaring’, a treatment process designed to increase production efficiency and reduce emissions resulting from the combustion of excess hydrocarbons.
The main partner in the project is Italy’s Eni, present in Ghana since 2009 through Eni Ghana and holder of a 47.22% stake in OCTP, while Vitol and GNPC retain stakes of 37.77% and 15% respectively.
Unfortunately, the low GDP per capita in Ghana based on purchasing power parity, equal to 3,992 dollars, and an average annual per capita income of around 1,800 dollars, are clear signals that a large portion of the population are not enjoying the benefits of this development.
The country’s situation is further worsened by high sovereign debt and in the last year it has had its credit ratings downgraded by the three main ratings’ agencies (Fitch from B+ to B, S&P from B to B- and Moody’s from B1 to B2). The three factors that determined the downgrades were the deteriorating fiscal position, the significant external financing needs and the necessity for adjustment policies, which are destined to have a negative impact on growth.
The Vision 2020 development programme, initiated way back in 1995 has succeeded in improving the standard of living for just under half the population. The Accra government is working to guarantee that in the next few years an increasing number of Ghanaians will be able to benefit from the development plan, the positive outcome of which represents not just an economic ambition but also a challenge that looks set to determine President Mahama’s future policy choices.
